Monday, December 17, 2012

Performant Financial ( Nasdaq - PFMT ) -- Government Dims Outlook

Performant Financial (PFMT $9.00) appears on track to produce good Q4 results.  Results have been slowed in recent months by technology upgrades by the federal government, which has slowed the amount of business Performant has been able to pursue.  More worrisome is a modification in the student loan program.  The poor economy has made it increasingly difficult for graduates to repay their loans.  Ordinarily that would have expanded Performant's potential market.  The company is the leading provider of loan modification and collection services.  The government has implemented new schedules that tie repayments to a percentage of income.  At this stage Performant is continuing to handle the negotiations.  But if the format gains widespread adoption the whole repayment scheme could become more automated and routine, diminishing the value of the company's involvement.  The government eventually could bring the entire effort in-house, moreover, similar to the way it took control of the lending process. 

Performant's Medicare operation (25% of revenue) still offers above average growth potential.  The new health care law could expand claim volume.  New coding systems might make the billing process more complex, as well, boosting the need for oversight.  Performant carries a sizable debt load, however.  And if the student loan profitability declines the pressure on finances could rise materially.  The shares may rebound over the next few quarters as the government completes its technology revamp and volume improves.  But the long term outlook has become less certain due to the Obama Administration's more relaxed student repayment scheme.  Our advice is to reinvest in a more dynamic Special Situation.

( Click on Table to Enlarge )

1 comment:

  1. Looks impressive, but after the Q4 the scenario was bit different